Ask any e-commerce seller what part of their business feels the most like a legal minefield, and "sales tax" comes up almost every time. Unlike income tax, which is one federal system with reasonably consistent rules, US sales tax is a patchwork of over 10,000 state and local jurisdictions, each with its own rates, rules, and filing deadlines. The good news: once you understand the handful of core concepts, sales tax stops being mysterious — it just becomes another routine part of running the business.
The concept everything else depends on: nexus
Nexus is the legal connection between your business and a state that triggers a sales tax collection obligation there. There are two main types:
| Type of nexus | What triggers it |
|---|---|
| Physical nexus | An office, warehouse, employee, or inventory physically located in the state (including inventory stored in a fulfillment warehouse, e.g. Amazon FBA) |
| Economic nexus | Crossing a sales or transaction threshold in a state, even with zero physical presence — most states set this around $100,000 in sales or 200 transactions annually, but exact thresholds vary by state |
Since the 2018 South Dakota v. Wayfair Supreme Court decision, economic nexus is now the rule rather than the exception — meaning an online seller with no physical presence anywhere can still owe sales tax in dozens of states purely based on sales volume.
Marketplace facilitator laws: the part that confuses everyone
Most states now require marketplaces like Amazon, Etsy, Walmart Marketplace, and eBay to collect and remit sales tax on your behalf for sales made through their platform. This is a huge relief for many sellers, but it creates a trap: you may still have a nexus and registration obligation in a state even though the marketplace is handling the actual tax collection on those specific sales. If you also sell through your own website (Shopify, WooCommerce), those direct sales are usually your responsibility to collect and remit yourself, even in states where your marketplace sales are covered.
Reality check: "the marketplace collects it for me" is only true for sales made through that marketplace. The moment you add a second sales channel — your own site, a different marketplace, wholesale — you need to separately verify your obligations there.
What to do once you have nexus somewhere
- Register for a sales tax permit in that state before you start collecting — collecting tax without a permit is its own compliance problem in most states.
- Determine taxability. Not everything is taxed the same way — some states exempt clothing, groceries, or digital goods, and product categories can be taxed differently even within one state.
- Collect the correct rate. Many states use destination-based sourcing (tax rate is based on where the buyer is), which means rates can vary down to the local level for a single state.
- File on schedule. States assign filing frequency (monthly, quarterly, annually) based on sales volume — and most require a "zero return" filed even in periods with no taxable sales in that state.
A simple table to track your exposure
| State | Nexus type | Registered? | Filing frequency |
|---|---|---|---|
| Example: Texas | Economic (crossed threshold) | Yes | Quarterly |
| Example: California | Physical (FBA inventory) | Yes | Monthly |
| Example: Ohio | None yet — below threshold | No | — |
Keeping a simple sheet like this, reviewed quarterly, is often enough to catch a new nexus obligation before it becomes a multi-year back-tax problem.
Why this matters for your bookkeeping, not just your taxes
Sales tax collected from customers is never your revenue — it's money you're holding on behalf of a state government, and it needs to sit in a separate liability account on your balance sheet, not get mixed into income. A properly structured chart of accounts should have a clear "Sales Tax Payable" liability account, and reconciling it monthly against what you've actually collected and remitted prevents a nasty surprise at filing time.
The most common mistake
The single biggest sales tax mistake for growing e-commerce sellers isn't collecting the wrong rate — it's not realizing that crossing an economic nexus threshold in a new state creates an obligation, sometimes retroactively, that nobody was tracking. This is especially common for sellers who scale quickly during a strong sales quarter and don't revisit their nexus footprint until months later.
Sales tax compliance for a multi-state e-commerce business is genuinely complex, and getting it wrong compounds quickly with penalties and interest. If you're not confident you know where you currently have nexus, that's worth sorting out now rather than after a state notice arrives. Get in touch and we'll help you map it out.
Frequently Asked Questions
What is sales tax nexus?
Nexus is the connection between your business and a state that creates a sales tax collection obligation. It can come from physical presence (an office, employee, or inventory stored there) or economic nexus (crossing a sales or transaction volume threshold in that state, even with no physical presence).
Do I still need to register if Amazon collects sales tax for me?
Often yes. Marketplace facilitator laws mean Amazon (and similar marketplaces) collect and remit tax on sales made through their platform, but you may still have a nexus and registration requirement in that state — and any sales through your own website are typically your responsibility to handle separately.
How do I know which states I owe sales tax in?
Track your physical presence (offices, employees, warehouse/FBA inventory) and your sales volume by state against each state's economic nexus threshold, generally reviewed quarterly. A sales tax software tool or bookkeeper can automate this tracking once your business sells in multiple states.
This article is general information, not personalised tax, legal or accounting advice. Rules and thresholds change — confirm current-year figures with the IRS or a qualified professional before acting. Ask Accounts Buddy if you'd like help applying any of this to your business.